Q&A; : A Guide to the State Retirement System

Gov. Pete Wilson’s proposal to use funds from the California Public Employees Retirement System to help close the state’s $14.3-billion budget deficit raises serious questions for beneficiaries of the fund as well as other public employees nationwide. The following are key questions about the fund and what the governor proposes.

What is the California Public Employees Retirement System?

Also known as CalPERS, it is the nation’s largest public employees’ pension fund, with an investment portfolio valued at $62.4 billion. Its beneficiaries include state workers, some school employees and local government workers. About one-quarter of those are retired.

Who runs CalPERS?

A 13-member board oversees the fund. Four board members are appointed by the governor, one is chosen by the Legislature and six are chosen by state workers and retirees. The state’s treasurer and controller also sit on the board.

Where does the money come from?

One-third of CalPERS contributions come from employees, and two-thirds come from employers--the state government and participating local school districts and municipalities. The money is invested in stocks, bonds and real estate, and the earnings on the investments are paid to retirees.

What does Gov. Wilson want to do?

Wilson, a Republican, wants to use $1.6 billion from the pension fund to help close the state’s $14.3-billion budget gap. He also wants to reduce the CalPERS board to nine members, five of whom would be named by the governor. He would eliminate seats for the state’s treasurer and controller, both currently Democrats.

Where does the $1.6 billion come from?

The money is “excess” interest earned on employee contributions to the pension fund. Excess interest is that earned above an 8.5% target set by CalPERS. The funds are paid out to retirees as cost-of-living adjustments if inflation reduces the “purchasing power” of their pension by more than 25%. Currently, half of CalPERS’ retirees, or about 115,000 people, receive this special purchasing power adjustment. The adjustment is not guaranteed, however. It is available only so long as there is excess interest.

If the money is used to close the budget deficit, how will it affect pensions?

According to the governor’s plan, no one’s pension would be reduced. But the formula for future purchasing power increases would change.

Under the governor’s proposal, retirees would get the special increase when the purchasing power of their pension falls by more than 32%. The new formula would also take Social Security benefits into account.

The governor maintains that his proposal is better for retirees because it guarantees the purchasing power benefit, regardless of how much excess interest CalPERS earns on its investments.

What has CalPERS proposed?

CalPERS has offered to let the state use the $1.6 billion as long as the state is ready to increase its pension contributions. CalPERS proposed that the state kick in additional funds when CalPERS’ investment income isn’t great enough to guarantee retirees an adjustment when their purchasing power falls by more than 25%.

The CalPERS Controversy Gov. Pete Wilson, a Republican, wants to use $1.6 billion from the pension fund to help close the state’s $14.3-billion budget gap.

Wilson also wants to reduce the CalPERS board to nine members, five of whom would be named by the governor. He would eliminate seats for the state’s treasurer and controller, both currently Democrats.

Wilson contends that no one’s pension would be reduced. But a formula for future cost-of-living adjustments would change.

CalPERS has offered to let the state use the $1.6 billion as long as the state stands ready to increase its pension contributions.